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Cash is King

Strategies for Utilizing Cash in Your Portfolio

VIEW WHITE PAPER (PDF)

SUMMARY

Cash and cash alternatives are commonly regarded as a no-risk, no-reward placeholder having little defined value within a portfolio. For the savvy investor, however, cash alternatives can serve an important role in reducing the swings in portfolio value while also offering liquidity to quickly take advantage of investment opportunities.

This white paper provides insight into types of cash alternatives and historical perspectives on market activity. Recognizing that all ultra-short-term assets are not equal and distinguishing the make-up of your specific cash and cash alternatives offers a more strategic approach.

In addition, the paper describes the risks of holding cash. And for those investors seeking to increase cash allocations, specific strategies are included to help you build up cash reserves, from keeping interest and dividends in cash to using the options market or a line of credit to maintain liquidity.

KEY TAKEAWAYS

  • A fortress balance sheet provides protection and downside risk management by holding excess cash and cash alternatives to retain liquidity.
  • In addition to money held in the form of physical currency notes and demand deposit accounts, cash alternatives can take the form of money market holdings, stable value funds, short-term government bonds, Treasury Bills, marketable securities, and commercial paper, all maturing within 90 days or less.
  • The key factor driving the deployment of cash reserves is determining whether the current market volatility is a correction, or a harbinger of an equity bear market.
  • In the current environment of low global interest rates, low inflation, and lackluster global growth, the opportunity cost of cash is considered relatively low compared to other times in history.

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